Will Fourways Mall deliver dividends for Accelerate?

Part owner of Fourways Mall, Accelerate Property Fund, is betting big on its soon-to-be largest shopping centre on the continent to boost its future dividend growth.

The mid-cap fund on Thursday posted its full-year results to March 31, which showed dividends per share (DPS) down 11.4%, from 57.55 cents to 50.97 cents. While this is in line with its guidance, the outlook for positive distribution growth is only expected in its 2021 financial year, following a full year of trade in the redeveloped 178 000m²Fourways Mall.

On completion of the multi-billion rand make-over and launch in August, Accelerate will own a 50% stake in the centre.

Fourways Mall is more than doubling its size. It will have around 450 stores, restaurants and ‘shoppertainment’ attractions, which will see it pipping the 177 000m²Menlyn Park Shopping Centre to the post as the largest mall in Africa.

‘Game-changer’

Accelerate CEO Michael Georgiou said in a statement that a 10-year vision is finally being realised: “We believe the completion and relaunch will be a game-changer in the greater Fourways node.”

He added: “To create funding capacity for the Fourways Mall equalisation, the executive team continued to focus on optimising the portfolio by disposing of non-core assets.

“Several disposals have been successfully concluded post our year-end date, and should the other planned disposals be achieved it will see our loan-to-value (LTV) reduce to approximately 35% pre-equalisation.”

In addition to its 50% stake in the new super-regional Fourways Mall, Accelerate’s other key local properties include regional malls Cedar Square (also in Fourways), Eden Meander Lifestyle Centre in George, KPMG’s South African head office in Johannesburg, Citibank’s South African head office in Sandton, and the landmark Portside Tower skyscraper in Cape Town. It also has offshore exposure in Austria.

Accelerate’s 601 506m² property portfolio is valued at R12.7 billion, up R400 million from its 2018 financial year. This is despite the number of properties decreasing from 67 to 62 by the end of its 2019 full year. It reported that vacancies in the portfolio were down just over one percent to 9%.

In its JSE Sens announcement, Accelerate noted that the South African economic environment remains challenging. “Unfavourable economic conditions continue to weigh heavily on property fundamentals,” it said. “In our view, the property sector will remain under pressure during 2019. Recent retailers’ results echo these sentiments, with consumers’ disposable income still under pressure and overall business sentiment poor.”

Income pressure

Accelerate said that despite several ongoing initiatives to reduce costs and fill vacant space, it has experienced considerable income pressure on a number of fronts. In addition to increased rates, utility and finance costs, efforts to reduce vacancies came at a cost – including softer rentals to retain tenants as well as rent-free periods and tenant installation allowances for new tenants.

Commenting on the results, Wynand Smit, real estate analyst at Anchor Stockbrokers, says: “While DPS was down 11.4%, the fund’s net asset value (NAV) per share increased by 2.5% from R7.65 to R7.84. The stock trades now at a circa 60% discount to its NAV per share.”

He adds: “The company expects further negative growth in dividends for FY2020 by between 6% and 8%. Only for FY2021 the company expects distributions to normalise to between 6% and 8% growth. Accelerate has done well to decrease its gearing from 41% to 39% over the 12-month period.”

Smit points out that the redeveloped Fourways Mall has experienced delays (it was originally scheduled for completion in mid-2018) but that it will include some differentiating tenants, especially in the entertainment segment such as KidZania (an indoor family entertainment centre) and Bounce (a massive indoor trampoline park).

“We are of the view however that it will take a few years for the prospective tenants to trade well until the economy recovers, especially as the retail market in Gauteng remains extremely competitive.”

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